India: RBI likely to cut benchmark repo and reverse repo rates by 25bps - TDS

Analysts at TDS expect the RBI to cut the benchmark repo and the reverse repo rates by 25bps to 6.00% and 5.75%, respectively, today, in line with consensus expectations, although nearly a third in the Bloomberg survey expects rates to remain on hold.

Key Quotes

“Our forecast reiterates our call made earlier this year that, given the lingering weakness in growth and the benign inflation outlook, which is reinforced by a favourable monsoon, the RBI will take the opportunity to cut rates at least another time in 2017. As a result, we expect the INR to remain relatively stable as the rupee’s sensitivity to rate cuts during periods of ‘normal’ volatility tends to be low or nil.”

“The market, however, holds a more hawkish view on policy rates than we do. Therefore, a cut accompanied by a dovish message will likely help the ND-OIS curve to adjust lower, with front-end rates possibly falling 12-37bps, which will help yields of short-dated IGBs and INR-denominated bonds fall.”